Futures Tank as Trump Proposes $100 Billion More China Tariffs

Mike Mish Shedlock

China retaliated on $50 Billion worth of tariffs, so Tump slammed China with another $100 billion.

The market? Who gives a damn what the market thinks?

After a decent rally today, the futures are deeply in the red this evening on news Trump Proposes $100 Billion More in Tariffs on China.

U.S. President Donald Trump said in a statement on Thursday that he has instructed U.S. trade officials to consider $100 billion in additional tariffs on China “in light of China’s unfair retaliation” against earlier U.S. tariff actions.

The statement said the U.S. Trade Representative has determined that China “has repeatedly engaged in practices to unfairly obtain America’s intellectual property.”

Message of the Day

The message for the day, as noted earlier and re-emphasized this even is Soybeans, Cars, Planes, and "To Hell With Wall Street".

https://twitter.com/zerohedge/status/982039379408539648

https://twitter.com/NorthmanTrader/status/982039322399559680

China Response?

How will China respond?

It will not be by dumping treasuries. For discussion, please consider Understanding the Trade "Nuclear" Threat, China Dumping Treasuries.

Mike "Mish" Shedlock

Comments (65)
No. 1-50
Tengen
Tengen

Will be interesting to see if the PPT can mash the "buy" button enough to keep things green under these circumstances. Oh, they'll need to keep hammering gold and silver too, but that goes without saying.

Carl_R
Carl_R

This hurts Americans two ways. First, their costs will rise - the Fed wanted 2% inflation, they may get more than that. Secondly, this will probably kill the market, which in turn will tank 401k plans.

2banana
2banana

We went from -450 to +250 a few days ago on the kind same news...

Mike Mish Shedlock
Mike Mish Shedlock

Editor

I am unsure of Short-Term consequences - we find out tomorrow, but this is bad news as long as it lasts

Six000mileyear
Six000mileyear

I've been following the US and German markets very closely. The past 2 weeks both traced out Elliiott Wave patterns (flats) that indicate the markets would top today/tonight. I have the added benefit of a spectral analysis tool I developed over the years. This tool gave a warning 2 weeks ago THE top was in since one major cycle was entering its steepest descent, and its little brother had just topped. These two cycles were responsible for the Dot Com and housing bubbles, so a market crash is underway.

niceconstable
niceconstable

Well which is it? Overvaluation or trade war talk? The stock market needs to adjust from the unsustainable (actually ridiculous) highs.
China put a tariff on soybeans from the U.S. Looked a bit into the world wide supply and China demand. If I were the commander in chief in this war I would say ok, China put a tariff on our soy beans. Ok, we are therefore cutting off all soy bean shipments to China. I am really amazed that China would put a tariff on something they need badly. Who knows, maybe they know something we don’t.
Wouldn’t it be a benefit to the U.S. to not have the reserve currency? Losing that is tough love but needed to get deficit spending under control.
Big adjustments are needed.

Carl_R
Carl_R

We went to -450 on the same kind of news. We went from there to +250 on the news that we were pulling out of Syria. Will be good news tomorrow to reverse the market? We'll see.

niceconstable
niceconstable

Big adjustments are comming.

Carl_R
Carl_R

As for China and soybeans, soybeans are fungible. If Japan is buying Brazillian soybeans, while China is buying US beans, and then, because of the tariff, Japan buys US beans while China buys from Brazil, not much changes. Contrast that with high tech industrial production.

Realist
Realist

Negotiations continue in the background. Trump is appealing to his protectionist base. China is responding to save face (they don’t like being called out publicly). Both sides have threatened tariffs without yet implementing them. Trump’s announcement today merely said he was “considering” another 100 billion in tariffs. It is a very dangerous game Trump is playing. As I keep saying, he could start a trade war if he isn’t careful, and both America and China will suffer as a result. The markets, meanwhile, bounce up and down like a yoyo with each announcement. Up when someone like Kudlow sound calm and reassuring. Down, when Trump turns up the trade war rhetoric.

Greggg
Greggg

The US tariff plan is based on Section 301 of the 1974 Trade Act that was the subject of a European Union complaint to the WTO two decades ago.

China on Thursday questioned at the World Trade Organization (WTO) the legality of US tariffs, while the US alleged that China is involved in the theft of US intellectual property.

US President Donald Trump signed a presidential memorandum last week proposing tariffs on up to $60 billion of Chinese goods over what his administration says is misappropriation of US intellectual property.

The tariffs would follow a 30-day consultation period that starts once a list of targets is published. https://www.aljazeera.com/news/2018/04/china-questions-legality-tariffs-wto-180405172223812.html

truthseeker
truthseeker

Believe it or not there is an article in today’s WSJ “How Trumps Tariffs Could Hurt China” which basically makes the point that there is a huge amount of investment coming in from outside the country most of which supports the industrial sector that would dry up in a protracted trade war forcing Beijing into another round of unproductive debt fueled stimulus.

Kinuachdrach
Kinuachdrach

Let's not forget -- China could solve this problem by dropping all their tariff and (more importantly) non-tariff barriers to US imports. Balance the trade by expanding imports from the US -- and make things cheaper for their own citizens. Global economy expands, everyone happy.

So why don't the Chinese take this easy way out and join Mish's unilateral "Free" trade movement? Since the US effectively went for unilateral disarmament a long time ago in the long-running trade war, if China dropped their barriers to trade, that would in practical terms be reciprocal "Free" trade. Yet the Chinese hang on to their (so-far winning) mercantilist approach.

Do the Chinese judge that the True Believers' "Free" Trade paradigm is hopelessly flawed?

thimk
thimk

yikes ! Kudlow will intervene as damage control . China manufactures 50 % of the worlds goods. No matter how strong our military is , it will take many moons to resource critical components. sounds like another Trump Taj Mahal .

Greggg
Greggg

Countries matter less and will continue to be obscured by the power of multinationals that roam there earth for 2 things... profit and tax avoidance.

Allsfairthatendswell
Allsfairthatendswell

Mish's solution. Do nothing. Continue to let other countries put barriers up for US products while dumping goods on this country until our manufacturing base is crushed. Sounds like a plan.

Carl_R
Carl_R

Tariffs on manufactured goods are going to at least not going to immediately destroy American manufacturing, unlike tariffs on manufacturing inputs like steel and aluminum.

Allsfairthatendswell
Allsfairthatendswell

Yes, because the middle class is doing great off of the wall street/banker/ political lackey deals of the last 30 years.

Greggg
Greggg

"Actually, the US can make a trade deal with India that is far better and shut China out of a reasonable deal." That is what all those man made islands (aircraft carriers) are about.

RedQueenRace
RedQueenRace

"The market? Who gives a damn what the market thinks? "

The overnight futures movements are not a great read on "what the market thinks." Liquidity is low and there is no telling who is selling. It could be undercapitalized weak hands panicking out or being forced out. In "West of Wall Street," Barry Haigh, an ex-S&P pit trader, explained that many of the fast moves in the futures are driven by undercapitalized traders in the pit who cannot afford to have big moves against them and are desperate to get out at any price. And that's during times of high liquidity.

Also, the Dow rallied over 1000 points in a session and a half. A big pullback would have been quite possible without the news. And given that the ES overnight low before Wednesday's session was never tested during the full session, it wouldn't even surprise me to see the market do a round trip back to it and then head up again.

The 90s bull taught me to ignore these events as nothing more than a trigger and / or catalyst for moves that were likely going to happen anyway. Isolated news events and individual earnings reports typically have short-term affects at most and how the market reacts depends upon its internal condition. Over and over I see meaning ascribed to these moves only to see them reversed not long after with pundits scrambling to explain why the reversal happened.

The Fed is going to kill this bull with QT and rate hikes and signs are popping up that this stuff is starting to bite. The clearest sign is a significant decline of M2 YOY growth. This will eventually matter.

AWC
AWC

Not to worry about what the "market" thinks. Worry about what the Fed thinks.

Sechel
Sechel

if trump is this callous about trade, imagine what he'd do with our military. Trump acts on impulse. Our economy can't be held hostage to how Trump feels from one minute to the next.

Meliv
Meliv

True. But the real reason is to protect their domestic market. While we may disagree on Trump’s approaches to address this, but the trade situation with China is definitely not ideal.

sachvik
sachvik

China is not hurting its consumers. It is taking the long approach to move manufacturing (and the paying jobs that come with it), not to mention the services ecosystem that builds around manufacturing, from developed Western nations to China. Once the whole ecosystem has moved to China, it can afford to relax the tariffs and allow the new, richer, Chinese consumer class to splurge? The question is will America (and the West) have something left to export to China by then...

Sechel
Sechel

if China's consumer is doing so well, why is Chinese consumption as a percentage of GDP falling every year. What's being forgotten is that Chinese GDP is first over-stated because of huge mal-investment. Second there are huge transfers of wealth from the consumer to state businesses that impoverish the consumer. This long term approach is a path to failure that Chinese leadership has been desperately trying to reverse. it's funny that you are extolling as a virtue something that China's own economic planners see as a huge problem.

TCW
TCW

It shouldn't be too hard to move manufacturing to other third world countries that will do it as cheap or cheaper than China.

sachvik
sachvik

It takes time to build an ecosystem like China's. China has the advantage of a large, well-educated, population and a central command-and-control economy which is able to move fast (if necessary); many other countries do not enjoy similar advantages.

sachvik
sachvik

Agree with you that the fruits of their strategy has not trickled down properly. On the other hand, I'd struggle to name one country where politicians do not mal-invest or promote their own pet projects...
That said, the basic argument I think remains: by promoting free trade, US is exporting its manufacturing jobs to foreign countries and importing their poverty (through lost jobs)... The end game is that US will end up looking a lot like the third world countries - a few rich people at the top, then a small cadre of the advisors, and the vast majority of commoners at the bottom barely surviving... After all, free trade (and free movement of capital) also means similar standards of wealth distribution

FlyOver_Country
FlyOver_Country

China is already shuttering textile factories by the hundreds. Places like Cambodia, Vietnam and other small SE Asia countries are taking on the lower cost textile work. China’s goal is to move towards high tech manufacturing and ultimately move away from manufacturing as the main economic engine and into the data revolution. Though, they have one major flaw and that is innovation, or more precisely the lack of innovation. My experience in working in China is that the culture is not suitable for free thinking, out of the box, problem solving. If given a task that are steps 1-2-3 with no complications, they work like machines. But ask them to think ‘out of the box’ or tinker with a problem and suddenly they back away unwilling to fail. I see where they want to go as a nation but I don’t believe they will achieve it with the current socio-political environment.

Carl_R
Carl_R

I don't understand what you are tying to say. Do you deny that tariffs on steel and aluminum will destroy American jobs? Putting a tariff on steel means that American manufacturers who use steel have to pay more for steel than Chinese manufacturers, and puts American manufacturers who use steel at a major cost disadvantage. For every steel maker job that is protected, 10 other manufacturing jobs are put at risk. In another thread, I gave a typical example of something that happened in 2002 when Bush put tariffs on steel. Within about a month, every American maker of wire hangers was out of business, since American made wire hangers suddenly cost 25% more than Chinese Hangers. The Chinese bought all their equipment, and shipped it overseas, so that when the tariff was eliminated a year later, the American industry could not start back up.
By contrast, if you put a tariff on manufactured goods, like hangers, that only hurts American consumers, and not American jobs. If your goal is to protect American jobs, you can do that by putting tariffs on manufactured goods. Putting them on manufacturing inputs does the reverse, and destroys American jobs, without having much effect on American consumers, since they can switch to buying cheaper foreign made products.

whirlaway
whirlaway

Tanking 401k's are the concern of the top 10% which owns 85% to 90% of the stocks. About half of Americans don't even have 401k's to worry about.

sachvik
sachvik

Agree with you that the ship has sailed on tariffs to bring back manufacturing - it only hurts consumers now... Maybe the priority now should be to protect services jobs where the US still has a competitive advantage. Tough questions - not so easy answers for politicians/ lawmakers...

Carl_R
Carl_R

By the way, who can name the last President who became President without holding prior political office. Who was the last President who was primarily a businessman, but did hold another political office? How did the economy do under those Presidents?

Sechel
Sechel

don't agree with your logic. agree with Mish. If china sells something at a loss it hurts them and benefits u.s. consumers and businesses. u.s. can build cheaper solar farms and gain a competitive advantage, auto companies can build cars cheaper for consumers in the u.s. or sell them lower than imports. making american businesses and consumers pay more does not benefit this country.

whirlaway
whirlaway

"Futures Tank ..." That reads like a ZH article headline! Not a day goes by when ZH doesn't have a headline about something or the other (and sometimes 2 or 3 things) tanking EVERY DAY! A friend of mine shorted the markets in 2013 believing in such headlines - and lost 100K....

Blacklisted
Blacklisted

Fed tightening will NOT kill the bull market because the bull market has NOT been due to QE, buy backs, or any fundamentals. Global capital will continue to flow into dollar-based assets because of safety, and the periphery always collapses before the core (US dollar). The flight to the dollar will accelerate as the sovereign debt contagion spreads, which will concentrate global investments in assets will real collateral (versus govt debt). The rising dollar and rates will tighten the screws on global govt’s holding too much dollar-based debts until they all scream uncle and a G20 meeting is triggered to reset the system and a new reserve currency is belatedly imposed.

The Fed had been forced by the IMF and the international community, at the expense of pensions, to not raise rates, which would start the screw tightening process. Now that pensions are on their death bed, with no chance of saving, the Fed wants to pretend they care and hopefully postpone the riots that will follow the inevitable broken promises by govt. Sorry, but rising rates is not a sign of an improving economy. It’s a sign of default risk rising in govt’s.

The unequal enforcement of the rule of law and declining liberty, along with increasing taxes and corruption for the benefit of the establishment will eventually sink the great American experiment, and send capital east, where the next financial capital of the world will be established. If American citizens do not rise up and stop this trend, China will be picking up the pieces. The combined forces of OWS and Tea Party must relentlessly demand short term-limits, balance budget amendment, enforcement of the rule of law (especially anti-trust laws in health care), right to work, and the upholding of the negative constraint on govt as the Constitution intended. The most recent example is the sacrifice of all privacy to participate in the digital economy, as Facebook, Google, and the rest of the connected class are demanding. If this lack of privacy and the attacks on our 2nd amendment rights are not protected right now, kiss this once great country good bye.

Snow_Dog
Snow_Dog

“China has the advantage of a large, well-educated, population and a central command-and-control economy which is able to move fast (if necessary); many other countries do not enjoy similar advantages.“ ~ sachvik

I’ll agree with the “move fast” part. The well-educated move quite fast when given the chance to move their capital offshore to western countries like the US and Canada.

Snow_Dog
Snow_Dog

Carl_R : I’ll take a shot at it, Carl. My guess is Eisenhower was the last to become president without ever holding prior elective office.
As for tariffs being ineffective, why is that so? Is it because domestic producers simply raise their prices the minute they gain relief from foreign competitors?

sachvik
sachvik

Will have to agree to disagree then. Cheaper is only good if you have a consumer class left to consume... In the long term, ecosystems matter... There is a reason New York is good in finance, Silicon Valley in tech etc. Has the US been able to successfully get all of its manufacturing workforce into higher value added software and services. Don't think so because the jobs get fewer and more specialised - ergo winners and losers. In any case
Only competitive advantages in the world today are rapid and continued innovation, scale benefits and preferential access to resources. That's why US cannot win in manufacturing any more - China has the scale now. Resources are fairly commodity and easily available in most cases with a few exceptions (e.g. rare metals).

sachvik
sachvik

I reiterate: I agree with Mish and most of everyone else here. Tariffs to save manufacturing won't help any more and are bad policy. But it would help if it forces China to stop IP theft (helps US companies protect its IP-heavy industries for the future). Not sure that's what Trump is aiming for though...

Kinuachdrach
Kinuachdrach

Sachvik wrote: "China is not hurting its consumers. It is taking the long approach to move manufacturing (and the paying jobs that come with it), not to mention the services ecosystem that builds around manufacturing, from developed Western nations to China."

That seems to be the key to this disagreement over the impact of tariffs (and even more importantly, non-tariff barriers). The "Free" trade believers are thinking only about the short term. The Chinese and their ilk are thinking long term. But bashing President Trump for recognizing a problem is easier for the "Free" traders than coming up with a constructive real world solution.

Carl_R
Carl_R

In the short run, China's socialist system can force their citizens to live with a low standard of living while they build up industry, but in the long run, Chinese citizens will expect to see their standard of living rise, too. That's the problem, here, too. It's true that the US can protect jobs by lowering the standard of living, but will that make people happier?

Kinuachdrach
Kinuachdrach

Carl_R: "In the short run, China's socialist system can force their citizens to live with a low standard of living while they build up industry ..."

Standard of living is a personal thing -- Hillary Rodman Clinton lives much better than me, for example. Government statistics are misleading, or outright fabricated; everything else is anecdotal.

Here is one anecdote -- high end retailers in places like the United Arab Emirates hire Chinese staff, because much of the business of selling Rolexes & Cartier diamonds is focused on big-spending Chinese tourists. Apparently it is cheaper for Chinese citizens to buy expensive brands overseas than in China -- and there are lots of Chinese tourists with a high-enough standard of living to do just that.

As another piece of questionable anecdotal information, look at contemporary Chinese movies and TV shows -- glittering cities, fantastic road systems, gleaming airports, well-dressed people. Sure, lots of Chinese don't share in that high life -- but ask the formerly-employed, now laid-off US factory worker living in a run-down trailer and lost in the desperation of opiods about his standard of living. Just don't ask him what he thinks about "Free" trade!

Wagen
Wagen

@FlyOver_Country Well, it is not like mishtalk.com is much different from zerohedge.com with its doomsday predictions.

I think it is good that we have folks like @whirlaway who do reality check for Mish articles. Curious readers who at least bother to go to comment section to read critical comments don't deserve to lose their money for falling for these attention screaming headlines :)

https://archive.mishtalk.com/2016/08/31/aero-industry-update-waiting-for-axe-to-fall-at-honeywell-and-boeing/ ... Boeing stock price back in 2016 August when axe was supposed to fall was $132. Now in 2018 April it is $324.

Mish chose to amplify negative rumors (possibily sent by fired employees? folks shorting stocks? Or just libertarians?) and completely ignored positive news about Boeing. Boeing 737 MAX was a major hit. Of course Mish does not care about airplanes so he did not mention that the new airplane in fact is revolution in terms of efficiency.

I can google up many more "calls" by Mish where his predictions were a magnitude off in wrong direction. And there will be many more to come based on the recent attention grabbing headlines.

So whoever is reading this comment. Just follow Robert Shiller if you are interested in Macro level Predictions about economy (he just became worried about economy). If You are trying to cherry pick stocks to long and short, then follow tech-oriented blogs who at least try to undestand what products companies are making. Mish does not do that and he rather choses to repost articles with attention grabbing headlines. Especially if they are pro libertarian utopic ideas (gold backed currency vs fiat, government subsidies vs no-intervention in private sector, free trade vs reciprocial trade ...).

Kinuachdrach
Kinuachdrach

To be fair to Mish, I think a lot of us sympathize with those libertarian utopian ideas. The problem is that we have to live in the real world, and it causes problems when people try to put libertarian utopian ideas like "Free" trade into effect unilaterally. Worse, the people who put those ideas into effect (Political Class, bureaucrats, academics) are not the people who suffer from the unintended bad consequences -- at least, not until Bastille Day comes around.


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